Massive risk-aversion is sweeping through financial markets on Thursday in response to Russia’s invasion of Ukraine.
The Russian offensive started in the early hours of the morning in Europe and has been occurring across the country. The mood turned increasingly negative as the morning progressed, with headlines and images displaying the atrocities taking place in Ukraine.
The knee-jerk reaction has been severe across the board and with the situation deteriorating by the hour, we could see further risk-aversion over the coming days. There remains huge uncertainty about how far Russia will go in Ukraine and what the knock-on effects will be across the globe, which could continue to weigh heavily on risk appetite.
This comes at a time when the global economy was already facing numerous challenges as it emerges from the pandemic. There will no doubt be consequences for the global economy, with recent moves in the oil and gas market compounding those pressures that were already being felt by households and businesses this year.
It also creates enormous uncertainty for central banks around the world as, on the one hand, higher oil and gas prices will intensify the inflationary pressures that they’re already trying to fight with rate hikes. But on the other hand, if they suppress economic activity and weigh on demand, it could help alleviate some of those pressures they’re most concerned about.
As it stands, we’re not seeing any massive shift in interest rate expectations but that could change if energy prices continue to rise in response to the Kremlin’s actions in Ukraine. In many ways, Russia has passed the point of no return as painful economic sanctions are coming. Just how painful that will be for them and the rest of the world is still to be determined.
Bitcoin suffers as traders head for safety
Bitcoin has come under significant pressure on Thursday as events in Ukraine have punished risk assets. It’s down more than 5% on the day but is a little off its lows. It didn’t quite fall as low as USD 33,000 to test the January bottom but that could come if the situation in Ukraine deteriorates further. Investors are scrambling for safe havens and it’s clear that bitcoin doesn’t fall into that category. If USD 33,000 does fall, attention will shift back to USD 30,000 which will be a major test. A break of this would be a massive psychological blow.
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